All posts for the month December, 2017

What does a donut have to do with selling your house? Honestly, nothing. But everyone loves donuts, and can relate to having had a stale one, so I am using it.

I can appreciate that when people go to sell their house, they want top dollar in return. We all do whenever we sell anything. We want to feel like we got the full potential value out of it. So I certainly come from the stance that sellers should get the most possible for their houses. I am not an agent who wants his clients to feel like they “gave away” their house. And obviously, the higher I sell a house for, the more money I make.

However, what a stale donut can teach us is that when you go to sell your home, sometimes listing it for less, can get you more. Sounds ridiculous doesn’t? It does because it is counter-intuitive. It feels like that shouldn’t be the case. But it can be very true. And when you find yourself on the wrong end of it, it can be a painful (and costly) lesson.

The analogy with the donuts goes like this:

At a donut shop, the owner has two frosted donuts in his case, chocolate and strawberry.

He prices the chocolate donut at .79 each, he prices the strawberry donut at 1.29.

Both donuts are roughly the same size, same ingredients, etc. Just differ in the frosting flavor. The owner just thinks the strawberry donut is better, so he wants more money for it.

Day 1: the chocolate donut sells out, while the strawberry donuts do not.

Customers likely don’t feel paying 50 cents more for the strawberry is worth it since the donuts are basically the same thing.

Day 2: the owner restocks the sold out chocolate donuts, but still has strawberry left from day 1. So he discounts those to .99 each to try to get rid of them.

Again, the chocolate donuts sell out, and the strawberry does not because people are not interested in paying 20 cents more for a day old donut when they can have a fresh one for less.

Day 3: the owner again restocks the sold out chocolate donuts, but then gets wise to the strawberry not being worth more, and prices them equal to the chocolate donuts at .79.

The chocolate donuts again sell out, and strawberry does not even though they are priced the same. Because now he is trying to sell a 3 day old donut for the same price as a fresh one, and who is going to choose the old one when the new one is the same price?

Day 4: once again the owner restocks the sold out chocolate donuts, however now he really needs to get rid of the strawberry donuts because they will go bad and need to be thrown out. So he slashes the price to .29 each to give the customer a reason to choose it.

Now, the owner sees both donuts sell out as the correctly priced, fresh chocolate donuts will always sell well, and the heavily discounted strawberry will sell too because a bargain shopper will come in and take him up on the deal.

The lesson here, I hope is obvious. That unless you want to take a loss on your donut sales, you better price it right from the beginning.

How does that apply to selling your home? Well, the principle is the same. If you decide that your house is worth more money than the house down the street, that is essentially the same house, you run the risk of becoming the “stale donut” of the neighborhood. But instead of it costing you 50 cents, it could cost you THOUSANDS!

The fact of the matter in real estate is, in most cases, the longer the house is on the market, the less money it will eventually be sold for. Time on the market is a huge detriment to the sales price.

While all of the appropriately priced houses are being sold around it, the overpriced house sits. And by the time the seller realizes it and gets the price competitive to the market, it’s usually too late. Buyers have already identified it as a “stale” house that has something wrong with it. Otherwise it would have sold already like all of the others. There may not be anything wrong with it, but sometimes perception is reality. And now the seller must drop the price well below market value to get it sold.

Sadly, this is all too familiar to real estate agents. Despite our best efforts to educate our sellers, this mistake happens all the time.

The reason for this is simple. Every seller thinks their house is by far the best in the neighborhood. Why is that? Because they like their house better than the others; and it makes sense. They bought that house for a reason. Then they picked out the paint colors, they decorated the walls, placed furniture and set up the flow and function of every room. And most importantly, have memories attached to every square foot of that house. It is hard to look at a house that is not yours, and see it as worth the same. It is a battle every seller will go through. And that is where listening to your Realtor helps.

Your Realtor will come into your home with the eye of a buyer. Who frankly doesn’t care that the paint in the kitchen is your all-time favorite color. Or the downstairs rec room was the family hang out area filled with many wonderful memories. Those things do not hold value to a buyer like they do in the seller’s mind. What they see is a house that is basically the same thing as the one down the street, and outside of a few features that might make one or the other worth a bit more than the other, they likely don’t see a 10, 20 or even 30 thousand dollar difference between them.

The market (i.e. buyers) will tell you what your house is worth. As they say, something is only worth what another person is willing to pay for it. So keep that in mind as you go to price your house. It will be tempting to price it high “because you can always come down.” But remember how that can be a huge mistake.